Solving for Sustainable Demand - Josh Santos, Noya

Listen to the recorded session, Direct Air Capture: The Goose that Lays the Golden Egg? w/ DAC Coalition, Skytree, Circular Carbon Network, Carbon Removal Alliance and Noya here.

‍Sustainable Demand 

On stage quote: "I always try to think of these things as what are we ultimately trying to solve for. We are trying to solve for sustainable demand which I define as companies wanting to line up to buy a thing. We have sustainable demand for Airbnbs and we need to build that for carbon removal and I think it’s more interesting to look at the reasons people are not quite doing that yet to understand what policy can do to enable that to happen." [00:06:17: 00:06:40 on session recording. Listen here]

Follow up response: "I like to work from first principles with these kinds of questions – so, we should ask, what are we ultimately trying to accomplish? I would argue that it’s sustainable demand. As an example, we have sustainable demand for Airbnb rentals – on the other hand, we don’t yet have sustainable demand for carbon removal – there are a very small number of purchases (in total), and most of the volume has been purchased by a small handful of buyers, like Microsoft, Shopify, and Frontier. So, I think it’s most useful to understand the reasons that other similar organizations haven’t yet joined these leaders – understanding the level of urgency, their concerns, and their current view on the market – these should inform how we grow demand, and policy has an important role to play."

Capital Costs and Supportive Policy

On stage quote: "We have seen DAC companies and other grants cut capital cost issues but I think by looking at things like how can we provide cheaper sources of energy which is something all DAC could use in droves or looking at how we can ensure that we are providing a transparent view into what supply means and how we should think about good supply, our theory is that policy has a real opportunity to step in and help this market." [00:06:56 - 00:07:22 Listen here]

Follow up response: "We have seen the DOE (US Department of Energy) step in to provide funding mechanisms to help address some of challenges around the upfront capital costs of these types of projects. That’s really helpful – and necessary – and we are excited to see other countries, such as Canada and Japan, and the EU develop and announce their own approaches to support this industry. In reality, though, the upfront cost of building these projects is just one of the challenges. As an example, governments also have an opportunity to look at how they can bring participants together through hubs by offering access to clean, affordable energy - something that all DAC companies would like to use. Or, they can work towards ensuring a transparent view into available supply, how organizations should think about “good” supply (the DOE is starting to do this through their CDR Purchase Prize). Our view is that policy has a real opportunity to step in and help this market grow over the next 5 – 10 years."

Bridging the Finance Gap

On stage quote: "Project financiers like to invest in technologies that have been proven and that they can say with some amount of certainty will be paid back over time. And so when we are thinking about accelerating the pace of that type of capital into DAC, we need to think about it in terms of what the current state is and how we can support bridging the gap between where technology developers like us are and where those project financiers are currently sitting." [00:12:44 - 00:13:08  Listen here]

Follow up response: "There’s an acronym in the industry (well, there are actually a lot…) that’s key to understand here: NOAK, or an “nth” of a kind project. This contrasts with FOAK, or a “first” of a kind project – one that’s seen as new, less proven, and therefore higher risk. There’s an understood model with project finance for NOAK, but FOAK is much less certain – fewer organizations funding those facilities, and fewer dollars available for them. But, we never get to NOAK without first building FOAK… so there’s this trail that each DAC start-up needs to navigate, and this broader gap that we as an industry need to address. To accelerate that type of capital into DAC, we need to think in terms of the current state, the risk / reward profile of the projects these organizations typically fund, and how to bridge the gap between promising, earlier-stage technology, like ours, and aligned project finance Teams. It will require teams to flex outside of their comfort zones and to dig in to learn each other’s perspective."

Doing the Math

On stage quote: "80 megatons being removed in 2030 means that there are 80 individual megaton projects that will be operating in 2030. Which means that next year we need 80 megaton projects at least under development because it will take somewhere between 3-5 years for those projects to actually be installed and then some amount of time after that for them to be commissioned. That means that next year we need around 80 storage capacity locations that can store at least a megaton per year, maybe classic wells, maybe we make a lot of concrete in a given place… There are a lot of things that need to fall into place for those projects to actually happen. And more importantly in 2030, we need 80 million tonnes of revenue flowing into direct air capture. That is equal to at least 8 billion dollars in 2030 of revenue flowing into DAC." [00:18:40: 00:19:25 Listen here]

Follow up response: "As a proud MIT alum, I’m obligated to start with the math! For the sake of simplicity, let’s use round numbers: if we are removing 80 megatons of CO2 per year by 2030, we will assume that those are being generated by 80 separate million tpa (tons per annum) projects, all of which are operating at full capacity. Each of those projects will take between 3-5 years (sometimes longer) to be developed, installed, and commissioned. So, practically, we need those 80 projects to break ground in the next few years… certainly by 2027. To have confidence to site those projects, developers need to see a highly certain path to store the CO2 that they will be capturing. In the US, that storage capacity will primarily be accessed through Class VI wells. So, we need 50 – 100 Class VI wells that are online and available in that same timeframe. The point is: this is a complex problem, and a lot of interconnected markets need to develop simultaneously – and that’s just the supply side. It’s important because we will only reach and exceed 80M tpa of removals in 2030 if those removals have been purchased. That amount is equal to - at least - $8B of revenue in 2030, so we are building a billion-dollar, eventually trillion-dollar industry, from the ground up, as fast as we possibly can get steel into the ground."

Creative Partnerships 

On stage quote: "The thing that has been really exciting to find out over the past 4 years working in something that has come to be called carbon removal is that you can really strike up partnerships in extremely unexpected places within this industry. And I am not just talking about partnerships like offtake partnerships, I am talking about partnerships  like project development opportunities or looking at ways to build community support. They really exist all over the place. We have examples of agricultural partners jumping in to support this new technology. We have seen industrials. We have seen many different kinds of companies, some of which make a lot of sense. Some of which are a wonderful joy to come across and so that has been extremely exciting to find and I would say to the people in this room never underestimate the willingness of someone willing to jump in to support our climate in a way that may not be obvious." [00:28:00 - 00:28:45 Listen here]

Follow up response:  "We believe that interesting pockets of opportunity and unconventional partnerships exist all throughout this industry. For example, we have ongoing conversations with agricultural and food companies that are excited to support our DAC technology. We have conversations with industrial technology companies that see the opportunity to partner and develop new lines of business, and we have even talked to non-traditional landowners who are interested in having a positive impact by supporting renewables and DAC on their property. Especially when these come from unexpected places – and with unexpected energy – they are an absolute joy… so, we work to never underestimate the possibility that the person or organization sitting across from us is ready and willing to jump in and strongly support our work – and our climate – in a way that may look / sound odd at first. These creative partnerships are critical to accomplishing our shared goals."

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